Tuesday, 7 October 2014

Bjornskov on fat taxes

Denmark introduced a fat tax at the beginning of 2012 and abandoned it again a year later. Besides the problems that Eric outline, the fat tax turned out to be a bureaucratic nightmare. Firms had to somehow assessed the fat contents in whatever they produced, which turned out to be both cumbersome and very expensive. A producer of high-quality sausages in Southern Denmark had to reduce their product line because about half of their products were unprofitable with the transaction costs associated with documenting their fat contents.

The introduction of the fat tax came to be an example of a problem that is almost always ignored by politicians: that any public authority with little accountability to voters is likely to shift as many transaction costs unto the private sector and voters as possible. Furthermore, the media wrote about the decision of how to reach the 'correct' tax rate. It turned out to be calculated as what was needed to yield 4 billion kroner (about .9 billion NZD).